Types of Contract
Author: Amisha Jain
Types of Contract
A Contract may be defined as any agreement made among parties to the contract which legally binds them to do or abstain from doing something.
As per Section 2(h) of Indian Contract Act, 1872 “ Any agreement enforceable by law is a Contract”
Many jurists have defined contract some of the definitions are as follows:
- “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to act or forbearance on part of others.”
- “Every agreement and promise enforceable by law is contract.”
TYPES OF CONTRACT ON THE BASIS OF VALIDITY OR ENFORCEABLITY
On the basis of Validity the contract can be classified into following five different categories, namely:
- Unenforceable Contract
A Valid contract is those contracts that are legally binding and enforceable in the court of law. In other words, any written or oral agreement among two or more parties to the contract to render services or to provide the product. Such a contract must qualify all the essentials of a contract.
Essential elements of a Valid contract:
- Offer and Acceptance.
- The intent of parties.
- Lawful Consideration.
- Parties competent to contract.
- Free consent.
- Offer and Acceptance: An agreement must comprise of a lawful offer and acceptance. The word lawful means that the offer and the acceptance must qualify the required conditions of a contract.
CASE: CARLIL V. CARBOLIC SMOKE BALL CO.(1892)
In this case, the carbolic smoke ball Co. made a product name ‘Smoke ball’ ‘ and advertised that it will cure people’s flu, and if it fails to do so the buyers of the medicine will get £100 from the company. Mrs. Louisa Carlil believing the advertisement purchased the medicine and started using it thrice a day but later she caught influenza. Thereupon, Mr. Carlil wrote a letter asking for £100 as per the advertisement. The company refused to pay and the case brought before the court, the court rejected the arguments of the company and it was held that Mrs. Carlil was entitled to recover said amount stating that company advertisement was more than a mere invitation.
- Intention: A valid contract must have clear intentions of the parties to create any legal obligation.
- Lawful Consideration: Consideration is the third essential requirement for a valid contract which is defined under Section 2(e) of the Indian Contract Act, 1872.
- Competent parties: A valid contract must have competent parries to the contract. A competent party as per Section 11 of the Act is :
- A person who has attained the age of majority (above the age of 18 years).
- Person of sound mind.
- A person not to be disqualified by the law.
- Free consent: A contract must have free consent of the parties. Consent is said to be free if it does not make under coercion, undue influence, fraud, misrepresentation, and mistake. A contract must have a legal object behind it.
A void agreement is those agreements which are not enforceable by a court of law. As per Section 2(g) of the Indian Contract Act, 1872 a void agreement is defined as “an agreement not enforceable by law .”
In the case of a void contract, No party will get any legal right and remedy in other words they are unenforceable and has no legal effect. A void contract or agreement is the result of non-fulfillment of any of the conditions or essentials prescribed under Section 10 of the Indian Contract Act, 1872
Some of the conditions are as follows:
- Lawful object
- Free consent of the parties to the contract
- Competent parties
- Lawful Consideration
Void contract are classified into categories following categories as follows:
- Void ab initio: Void from the very beginning.
Case: Mohiri Bibi V. Dharmodas Ghose
In this case, it was held that a contract or an agreement with a minor (a person below 18 years of age or who has not attained the age of 18 years legally) is Void ab initio.
- Void due to impossibility in its performance: when it is impossible to achieve the object of the contract then the contract becomes Void.
Example: if a contract is created among X and Y but later the object of the contract become impossible to attain then in such case the contract becomes void and unenforceable.
- Void as per the provision laid under Indian Contract Act, 1872 :
- Any agreement where the parties are under mistake (or bilateral mistake) as to the matter of fact is void (Sec. 20)
- Any agreement having unlawful object and consideration are Void (Sec. 23 &24)
- Any agreement made with the consideration is Void (Sec. 25)
- Any agreement restraining marriage of any person other than the minor is Void (Sec. 26)
- Any agreement restraining trade is Void (Sec. 27)
- Any agreement restraining legal proceedings is Void (Sec. 28)
- Any agreement having uncertain terms is Void (Sec. 29)
- Any agreement by way of wager are Void (Sec. 30)
A voidable contract is those contract which does not have free consent in it. In other words, a contract made under certain pressure which may be either physical or mental and may become voidable or void in the future.
The word free consent here means that a consent obtained under:
- Undue influence
Example: if a contract is created among A and B where A has forced B to enter into the contract in this case the contract becomes voidable at option B.
Case: Ranee Annapurna V. Swaminathan
In the above-mentioned case, An old Hindu widow in urgent need borrowed money having 100% of Annual interest in this case it was held that the contract is made under undue influence and henceforth it is voidable.
Illegal Contract: Any contract that has been made with an unlawful object behind it is termed as an illegal Contract. All illegal contracts can be void but all void contracts cannot be illegal. The difference between illegal and void contracts is that under illegal contracts the object of the agreement is forbidden by the law whereas A void contract if made it will not be enforceable by a court of law.
Unenforceable Contracts: Any agreement whether written or oral which can not be enforced by the court of law are known as Unenforceable Contracts
Conditions where contract become unenforceable:
- Lack of capacity: The parties must have the legal capacity to enter into an agreement which means a party must be a major (above 18 year of age), he should be of sound mind, a person should not be disqualified by the law. If any of the party lack capacity will constitute unenforceable or unlawful contracts.
- Undue influence: if any of the parties to the contract use practices like threats, violence to get over the other person to sign such deed or contract will lead to an unenforceable contract.
- Misrepresentation and fraud: an agreement where one party misleads the other party by making any false representation and statements or by omitting necessary information can lead to an unenforceable contract.
- Against Public policy and Law: Agreement which is made against the Law or Public interest is termed as unenforceable the main object behind it is to safeguard the society as a whole.
Example: the agreement made to buy illegal drugs or weapons is not enforceable under court of law.
# Avatar Singh, Business Law (10th Ed), 2014.